Organizational Structure - Need for a flatter structure

Startups have a great advantage in how they are laid out since hierarchies are not established in the initial days. The top management is placed very close to everyone else and they are in the know-how of all that is happening within the company. This creates information symmetry that benefits the entire organization. Decisions are quicker and more holistic with the incorporation of multiple viewpoints.

However, as an organization grows, it is believed that the number of people that can be effectively managed by a manager is limited to around 7. This results in a tall pyramid structure with multiple layers of management. Though a formal structure is introduced through which highly structured processes can be introduced, it creates a hindrance in communication. The biggest drawback is the detachment of senior managers from daily operations. In my view, this is where most large companies begin to stumble and make mistakes, especially on the operational and compliance side. The recent example of StanChart, that was fined millions of dollars in succession shows that the top management is aware of specific compliance requirements but is unable to manage the follow through in its implementation. They are so detached from the actual implementation that regulators hear a different story from top management as compared to what is actually implemented.

In conclusion, the need for hierarchy is unavoidable but one of the ways to increase communication and engage senior management in the daily operations is to break larger companies into smaller manageable units. Each unit then resembles a small company whose pyramid is still flat and the advantages of initial structure still exist.